3 Strategies for Business Owners to Invest in Retirement

In June 2020, the U.S. Small Business Administration reported that the United States is home to 31.7 million small businesses. Renowned for its fertile business-starting grounds, it’s no surprise that the United States is home to so many businesses.

Although running a business is a common life goal for many, self-employed individuals miss out on many benefits that their employed counterparts are privy to. For example, employees only pay 7.65% in FICA taxes, whereas self-employed people — including business owners — pay twice that rate. Small business owners also don’t have access to individual retirement accounts like 401(k) plans unless they fund them themselves.

Further, small businesses routinely struggle to offer the same retirement plans as their corporate competitors. This disadvantage can give your competitors their pick of the local labor pool, leaving your business with less-qualified employees. 

Whether you’re interested in retirement or not, every business should explore options for helping themselves and their employees retire. While every business owner is different, you’ll find at least one strategy below that suits your own, your family’s, and your employees’ needs.

  1. You’re Your Only Employee

Many small businesses are one-person operations. Even though you might not have any obligations to employees, you’re undeniably obligated to your future self. If you’re your business’s only employee, consider a one-participant 401(k) plan. 

Also known as solo 401(k) plans, these plans allow business owners and self-employed individuals with no employees to contribute the lesser of up to $57,000 for the tax-filing year of 2020. Here’s how that $57,000 breaks down:

  • As your business’s employee, you can save as much as $19,500 of your compensation per year
  • As the employer, you can contribute as much as 25% of your employee compensation.
  • If you’re an LLC or a sole proprietor, you’re allowed to contribute as much as 25% of your net self-employment income.

The primary upside of a solo 401(k) is deferring taxes on earnings until you withdraw from your retirement account. Instead of a standard 401(k), you can opt for a solo Roth 401(k), which requires you to pay tax on contributions now in favor of tax-free withdrawals in the future.

  1. You Want a Retirement Plan for Yourself and Your Employees

The Internal Revenue Service offers SIMPLE IRAs to businesses with as many as 100 employees. As a business owner, you’ll also be able to enroll in your company’s SIMPLE IRA plan.

In 2020, you and your employees can contribute as much as $13,500 to their individual retirement accounts. Just like solo 401(k) plans, contributions to SIMPLE IRA accounts are deducted from business income as expenses. 

As an employer, you’re forced to match either 2% of employees’ compensation every year or 3% of their earnings with the option to pay as little as 1% in any two years out of each five-year period.

  1. You’re Not Interested in Any Retirement Account Plans

Let’s face it — keeping up with regulatory filings for retirement accounts and paying for them can be burdensome. If you’re not interested in bringing these programs to your business, you should at least start saving yourself.

Although you shouldn’t sink all of your savings in cryptocurrency, consider placing as much as one-fifth of your savings into cryptocurrencies like Bitcoin. This has shown to be an incredibly effective long-term strategy even in emerging markets. Bitcoin price in India at a given time may make an investment highly lucrative over time. You can even start offering Bitcoin as an accepted payment method, helping you save money on converting fiat currencies into crypto.

Always seek professional investment advice for help diversifying your funds. Make sure to invest your funds with a tried-and-true financial institution. 


Rylie Holt